UK manufacturing
UK manufacturers are suffering because of the strength of sterling, which is pulling down exports.Reuters

Manufacturers in the UK are rapidly growing their businesses and taking on more staff, but a strong sterling is hurting exports.

The Confederation of British Industry (CBI), the UK's largest business lobbyist, said in its monthly SME manufacturing survey for July that 31% of firms reported output increasing, while 16% said that it decreased, giving a balance of +15%.

And 34% of firms said that employment rose, while 9% said that it fell, giving a balance of +24% – the strongest pace of growth since the survey began in 1988.

However, 18% said export orders rose, against 20% saying they fell, giving a balance of -2%: far below the previous month's expectations of +25%, predicting better global trade.

The pound's value is strengthening as the economy recovers strongly, with around 3% growth expected for 2014 – the strongest of any developed Western economy.

And the Bank of England is expected by markets to hike interest rates by early 2015, pushing sterling even higher.

This coupled with ongoing global economic weakness, such as slowing growth in the powerhouse Chinese market and a tepid eurozone recovery, is weighing down UK exports.

"Smaller manufacturers are settling into a regular growth pattern, with their order books and output growing for the fourth consecutive quarter," said Katja Hall, deputy director-general of the CBI.

"But export orders have underperformed this quarter, which may in part be because of the strength of sterling.

"We need the government to get behind our small and medium-sized manufacturers to help them to sell their products and services to new markets around the world, giving a sustainable boost to long-term growth."